Emerging Trends

Academy of Actuaries Addresses Climate-Change

Professional Association is raising awareness of growing
climate and weather related risks

WASHINGTON, D.C. – Ahead of Earth Day (April 22), the American Academy of Actuaries will use social media messages to help bring attention to the risk of severe extreme weather/climate-related events and their incidence.

The effort follows the Academy’s release of an Essential Elements paper on Climate Change earlier this year and its ongoing work with a group of North American actuarial organizations on a project to index the frequency and severity of such events.

“The Academy hopes to enhance understanding among policymakers and the public at large of the increasing risks from extreme weather incidents,” said Shawna Ackerman, vice president of the Academy’s Casualty Practice Council. “Our aim is to evaluate and help manage exposure to these risks from an insurance perspective. We do that by combining an objective perspective on what current climate science is telling us with our actuarial expertise.”

Excerpts from the Academy's January 2015 issue of Essential Elements:

Climate Change
Many Americans have felt the effects of climate change: increased droughts in the western United States, higher rainfall and snowfall in the eastern part of the country, and greater damage from tornadoes, hurricanes, and other extreme climate events.

Additionally, climate scientists have been predicting the global impact of record-breaking warm temperatures for years. Recent studies show that insurers are facing higher property and casualty insurance losses, which ultimately lead to higher costs to consumers and businesses. A key component of weather-related damage has been increased building along U.S. coastlines and rivers, and in other areas prone to hurricanes, forest fires, and severe storms.

Climate change and a rise JANUARY 2015 American Academy of Actuaries Essential Elements Making complex public policy issues clear Climate Change in extreme weather-related events could increase losses in the future. While there is ongoing scientific debate on how fast the earth’s climate is changing and how much is influenced by human activity, alterations in weather patterns have been observed worldwide including:
-Global mean surface temperatures have increased by 0.6 degrees Celsius since 1951

– Seven of the 10 warmest years on record for America’s contiguous 48 states have occurred since 1990
– The fraction of global land area experiencing extremely hot summertime temperatures has increased ten-fold over the past 50 years.

there were 80 U.S. weather-related events that cost more than $1 billion each between 2004 and 2013. During the previous decade, there were only 46 such events

North American Threat
Over the past three decades, the number of weather-related loss events in North America grew by a factor of five, according to a 2012 report by Munich Re. This compares with a four-fold increase in Asia, 2.5 in Africa, 2 in Europe, and 1.5 in South America. North America faces every type of hazardous weather risk – hurricanes, tornadoes, drought, flood, wildfire, and storms, according to the report.

One reason is that no east-west mountain range exists in North America to prevent southern warm air from colliding with cold Canadian weather fronts. Rising Property/Casualty Costs As weather-related damages increase, these costs fall on insurers, businesses, and consumers. The world’s five largest natural catastrophes ranked by insured losses in 2012 all occurred in the United States, including Hurricane Sandy, drought in the West, and various storms and tornadoes, according to Munich Re.

The National Oceanic and Atmospheric Administration (NOAA) recorded 80 U.S. weather/climate events that each had losses exceeding $1 billion between 2004 and 2013, compared with only 46 events in the previous decade

Read the entire report here.

Disasters are taking their toll

From the drought in the West to record snowfalls in the Northeast and high-intensity, high-impact hurricanes making landfall on the Atlantic and Gulf coasts, natural disasters are taking an increasing human toll, including costing Americans more, either directly or through their insurers, which face increasing property and casualty losses.

According to the National Oceanic and Atmospheric Administration, there were 80 U.S. weather-related events that cost more than $1 billion each between 2004 and 2013. During the previous decade, there were only 46 such events. The costs have been aggravated over the course of years by increased building along coasts and rivers. Wildfires in drought-ridden areas and other increasingly frequent extreme events are also behind the mounting costs.

The Academy is part of a group of North American actuarial organizations jointly developing the Actuaries Climate Index and the Actuaries Climate Risk Index, which will focus on measuring the frequency and intensity of extremes in key climate indicators based on controlled observational data of temperature, precipitation, drought, wind, sea level, and soil moisture in the United States and Canada.

A second stage of this project is intended to include socioeconomic data, with the addition of a more targeted index that reflects the risk to populations and capital due to climate change. Learn more about this issue by visiting www.actuary.org/content/climate-change-resources, and follow the Academy’s efforts on Facebook, Twitter, and LinkedIn: facebook.com/American.Academy.of.Actuaries twitter.com/Actuary_Dot_Org linkedin.com/company/american-academy-of-actuaries